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Shares of parts makers outshine chips, display giants

Chips, display makers have declined on concerns their supercycles are running their course

By Jul 27, 2021 (Gmt+09:00)

Shares of parts makers outshine chips, display giants

Shares of South Korean semiconductor and display parts makers have stolen the spotlight from their key customers like Samsung Electronics Co. and SK Hynix Inc. which have been losing their ground in stock markets.

SK Materials Co. and Hansol Chemical Co., both of which count Samsung Electronics, SK Hynix and LG Display Co. as customers, have seen their share price soarging over the past month. They were driven higher on the prospect that the shortage of memory chips and intensifying competition to build capacity among global chipmakers would fuel demand for their products used in chips and display screens. 

By contrast, shares of Samsung Electronics, SK Hynix and LG Display are about 20% off their historic highs touched earlier this year despite their forecast-beating quarterly results. They were weighed down by concerns that a memory chip supercycle might be waning, with display panel prices seen to have peaked.  

Last week alone, shares of SK Materials, an industrial gas producer, notched up a 20.71% gain, hitting their highest level of 499,600 won on July 22. That compared with a 2.47% drop in its affiliate and customer SK Hynix during the same period.

SK Materials shares rallied in response to its announcement of setting up a joint venture with Group14 Technologies, a US battery materials startup. Their JV will build a lithium-silicon battery materials plant in South Korea. On Tuesday, SK Materials added 0.25% to 437,000 won but it is still up 24% % month to date. 

Hansol Chemical, which supplies coating materials for display panels and thin film materials for chips to Samsung and Taiwan's TSMC, rose 13% last week. Despite a 1.77% slip to 278,000 won on Tuesday, its share price has gained 13% since the start of this month.

Their bullish performance, which started late last month, has stood out in dull trading in the broader Kospi market where Samsung Electronics and SK Hynix are the two largest stocks in terms of market capitalization.

Both Samsung and SK Hynix inched down on Tuesday. LG Display ended flat, amid the prospect that the prices of LCD panel prices, underpinned by robust demand for PCs and TVs in the stay-at-home trends, might have peaked in the first half of this year. 

SK Siltron's employees at semiconductor materials production facility
SK Siltron's employees at semiconductor materials production facility

As global chipmakers are forecast to spend a combined 160 trillion won ($140 billion) in building new foundry facilities in the US over the next three years, their components suppliers stand to benefit from rising demand.

TSMC, the world’s top foundry player, is estimated to pump 115 trillion won to boost US capacity over the next few years, followed by Intel Corp.'s 23 trillion won and Samsung Electronics' 20 trillion won.

As part of its efforts to jump into the foundry field, Intel was considering a purchase of a chip foundry company GlobalFoundries for $30 billion, according to a report from the Wall Street Journal earlier this month.

Hansol Chemical is expected to gain another ground from Samsung's rollout of the much-anticipated QD-OLED TV in the first half of next year. Hansol produces quantum dot materials for displays.  

To meet rising demand from Samsung Electronics and TSMC, Hansol is likely to build a US plant which would help diversify its customer base to Intel and other global chipmakers, said KB Investments analyst Kim Dong-won.

KB Securities' top picks among chip materials suppliers are SK Materials, Hansol Chemical and Soulbrain Co. which produces electronic materials for secondary batteries, chips and displays.

In Duksan Neolux Co., an OLED materials manufacturer, NPS has slightly increased its holding to 5%, according to its recent disclosure.
 
SK Mateirals, Soulbrain and Duksan are traded on the Kosdaq market. They are expected to find another support from the National Pension Service's decision to expand the pool of domestic stocks it tracks from next year.

Write to Jae-yeon Ko at yeon@hankyung.com

Yeonhee Kim edited this article.

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